USD/CAD Fundamental Analysis – week of August 21, 2017

USDCAD pair followed the price template that we had laid out for the past few days and it seems to be going well according to the plan. Few weeks back, we had mentioned that the pair had corrected too much and though the pair was in a downtrend for some time, we believed that a correction of the downtrend was well due and had even mentioned the region around 1.24 which was likely to bring in the bounce. The pair did bounce from that region as expected and began to move higher.

USDCAD Moves Lower As Expected

We also mentioned that the region around 1.2750 was likely to be a target for the bulls and the pair did make its move quickly. For the first half of last week, the pair consolidated in this region and despite some weak data from the US, the pair refused to correct which led a part of the market to believe that the move up was not a correction but a full recovery in the dollar. Despite all this talk, we kept saying that the upmove was only a correction of the downtrend and it was only a matter of time before the downtrend resumed as the difference in the fundamentals between the Canadian and the US economy was clear.

The BOC was being very bullish about the Canadian economy which was supported by the strong data thrown up by the country over the last few weeks while the US and the Fed has been struggling with weak and choppy data. Last week, we did see the US data getting better but on Friday, we saw some strong CPI data from Canada and we also saw the oil prices move up by close to $2 which helped to support the CAD. This helped the pair to break through the support region at 1.2660 and the pair trades below 1.26 to close the week, a clear signal that the downtrend has resumed.

Looking ahead to the new week, there is not much economic data around from Canada or the US with all the focus being on the Jackson Hole meeting. But, we expect the downtrend to continue and this is likely to lead the USDCAD pair towards 1.25 and then towards 1.24 in the short term.